Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias
AbstractThis paper examines the pricing of state contingent claims in the presence of insider traders. The specific setting is the market for bets in a horse race in which bookmakers compete in prices in anticipation of betting from a group of bettors, some of whom have insider information. The author identifies a condition which is necessary and sufficient for the so called "favorite-bias" in which, the prices on the favorites understate the winning changes of these horses relatively less than the prices on the longshots. The robustness of this result is examined in a more general framework, and the bias is shown to survive in a generalized form. Copyright 1992 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 102 (1992)
Issue (Month): 411 (March)
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- A. Schnytzer & M. Lamers & V. Makropoulou, 2009.
"The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market,"
Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium
09/627, Ghent University, Faculty of Economics and Business Administration.
- Schnytzer, Adi & Lamers, Martien & Makropoulou, Vasiliki, 2010. "The impact of insider trading on forecasting in a bookmakers' horse betting market," International Journal of Forecasting, Elsevier, vol. 26(3), pages 537-542, July.
- Adi Schnytzer & Martien Lamers & Vasiliki Makropoulou, 2009. "The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market," Working Papers 2009-11, Department of Economics, Bar-Ilan University.
- Adi Schnytzer & Martien Lamers & Vasiliki Makropoulou, 2011. "The Impact of Insider Trading on Forecasting in a Bookmakers' Horse Betting Market," Working Papers 2011-14, Department of Economics, Bar-Ilan University.
- Williams, Leighton Vaughan & Paton, David, 1997. "Why Is There a Favourite-Longshot Bias in British Racetrack Betting Markets?," Economic Journal, Royal Economic Society, vol. 107(440), pages 150-58, January.
- John Peirson, 2008. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behaviour," Studies in Economics 0819, Department of Economics, University of Kent.
- Dixon, Mark J. & Pope, Peter F., 2004. "The value of statistical forecasts in the UK association football betting market," International Journal of Forecasting, Elsevier, vol. 20(4), pages 697-711.
- Stefan Winter & Martin Kukuk, 2008. "Do horses like vodka and sponging? - On market manipulation and the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 75-87.
- Babatunde Buraimo & David Peel & Rob Simmons, 2013. "Systematic Positive Expected Returns in the UK Fixed Odds Betting Market: An Analysis of the Fink Tank Predictions," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 168-182, December.
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